Broadcasters feeling the heat as another agency tries to help the music industry 

In its never-ending push-and-pull relationship with the music industry over copyright royalties, the radio industry currently faces assaults on multiple fronts. While the creation of a “performance right” (or, as broadcasters view it, a “performance tax”) appears to have been staved off for another year (according to the NAB), there are plenty of other threats headed the broadcasters’ way.

For example, the radio industry is already subject to a performance right obligation requiring stations to pay recording artists, through SoundExchange, for the digital performance of sound recordings. That burden is almost certain to increase as a result of the “Webcasting IV” proceeding that will set new streaming rates for 2016-2020. Also, the Copyright Office is looking at whether changes to all aspects of music licensing are warranted. And lurking just beyond the horizon we have the “Respect Act” recently introduced in Congress. That would require digital radio services (Pandora, Sirius XM and anyone engaged in webcasting, including broadcasters) to pay royalties for sound recordings created before February 15, 1972. Such recordings are currently covered by most state copyright laws but not by federal law.

Now we can add another potential flashpoint: the Antitrust Division of the Department of Justice has initiated a review of the longstanding ASCAP and BMI Consent Decrees that mandate federal court oversight of the rates paid by radio broadcasters to ASCAP/BMI-repped songwriters/composers.

The Consent Decrees were entered into in 1941 after the two Performance Rights Organizations (PROs) were adjudged to have engaged in anticompetitive behavior. They provide that the terms and conditions (including the rate) of the license arrangements between broadcasters and ASCAP/BMI must be reviewed and approved by a judge of the U. S. District Court for the Southern District of New York. The Decrees are subject to periodic review and amendment by the Antitrust Division, though it’s been more than a decade since the last such amendment (2001 for ASCAP, 1994 for BMI).

ASCAP, BMI and “other firms in the music industry” have apparently expressed concerns that the Consent Decrees should be updated in light of “changes in how music is delivered to and experienced by listeners.” In response to those concerns, the Antitrust Division plans to explore whether modifications are in order and, if so, what modifications are called for. Specifically, it seeks comment on several questions:

  • Do the Consent Decrees continue to serve important competitive purposes today? Are there provisions that are no longer necessary to protect competition? Are there provisions that are ineffective in protecting competition?
  • What, if any, modifications to the Consent Decrees would enhance competition and efficiency?
  • Do differences between the two Consent Decrees adversely affect competition?
  • How easy or difficult is it to acquire in a useful format the contents of ASCAP’s or BMI’s repertory? How, if at all, does the current degree of repertory transparency impact competition? Are modifications of the transparency requirements in the Consent Decrees warranted, and if so, why?
  • Should the Consent Decrees be modified to allow rights holders to permit ASCAP or BMI to license their performance rights to some music users but not others? If such partial or limited grants of licensing rights to ASCAP and BMI are allowed, should there be limits on how such grants are structured?
  • Should the rate-making function currently performed by the rate court be changed to a system of mandatory arbitration? What procedures should be considered to expedite resolution of fee disputes? When should the payment of interim fees begin and how should they be set?
  • Should the Consent Decrees be modified to permit rights holders to grant ASCAP and BMI rights in addition to “rights of public performance”?

So what’s the big deal? After all, it has been a long time since the Consent Decrees were amended and there have been a lot of changes in the music industry in that time.  

True and true. But the Consent Agreements are among the broadcasters’ strongest protections against the imposition of unreasonable rates and terms by ASCAP and BMI. Yes, many broadcasters aren’t entirely happy with their current rates (which, for the first time in recent memory are identical for ASCAP and BMI, set at 1.7% of Gross Revenue from Broadcasting, with some minor adjustments available), but trust me, it could be much worse. After all, Sirius XM pays 9.5% of revenue to SoundExchange in 2014, with the percentage of revenue set to rise to 11 percent by 2017.

More illustrative is the recent royalty fight between Pandora and ASCAP/BMI. That face-off was resolved by Judge Denise Cote of the Southern District of New York (the same judge currently overseeing the Consent Decrees). Pandora wanted a rate close to the 1.7% of gross revenues currently paid by broadcasters; ASCAP and BMI wanted something closer to 3%. Judge Cote settled on 1.85%. One can easily imagine what might happen if such judicial oversight isn’t available to broadcaster in the future. Could they, too, be paying 3% to ASCAP and BMI before too long? This increase would make the proposed the long-dreaded Performance Rights Act payments – especially those that would be imposed on “small broadcasters” – a mere pittance by comparison.

And it’s not like individual broadcasters have any leverage against ASCAP or BMI. The industry as a whole does – and it’s that industry-wide negotiating, ably led by the Radio Music License Committee (RMLC) under the umbrella of the Consent Decrees, that keeps the rates low. But I’ve seen way too many individual stations find themselves buckling under the superior weight of ASCAP or BMI on various issues (such as the interpretation or definition of individual terms in the licensing agreements in ways that have significant financial ramifications). Make no mistake about it: ASCAP and BMI are big corporations with significant money and resources to push small, medium and even larger broadcasters around. 

But if you need any final convincing that broadcasters should be concerned, note what is happening with regard to the one PRO that isn’t already under a consent decree: SESAC.

As we have reported, SESAC entity is being sued by the RMLC for anticompetitive behavior. The RMLC is seeking the imposition of a Consent Decree on SESAC as well. In other words, consent decrees continue to afford important protection for radio broadcasters. While the Antitrust Division’s latest review doesn’t mean the ASCAP and BMI Consent Decrees will be eliminated, it clearly opens the possibility that those decrees could be weakened, to the detriment of broadcasters.

If you doubt that, consider this: ASCAP quickly issued a statement welcoming the DOJ’s review proceeding, indicating that they clearly believe things will improve for their songwriter clients. Look for ASCAP and BMI to proffer tales of woe regarding the sad financial state of the music industry. And there may indeed be hardships, but things are tough all over. Broadcasters wanting to give the DOJ a clear perspective of their industry and their need for continued strong governmental protection to preserve their small-and-getting-smaller profit margins may want to consider filing comments with the DOJ by August 6, 2014.